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Ti Market Insight #2 The ‘Gig Economy’ and the status of Transport Workers

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This article will deal with:

The issues surrounding the use of owner-drivers in the logistics sector.

The e-commerce pressures which have created the market environment for controversial working practices.

The confusing classification regulations which exist to determine ‘self-employed’ or ‘employee’ status.

On-demand economy and its impact on couriers

Many logistics companies are rightly proud of the sustainability initiatives which they have introduced within their warehousing and transport operations. Despite this, the fundamental business models and employment structures which many companies in the sector operate are coming under intense scrutiny due to the impact which they have on logistics workers. Many of the issues relate to the highly subcontracted nature of labour in the transport market.

THE INCREASING USE OF OWNER-DRIVERS

Although the use of owner-drivers (self-employed transport workers who also provide their own vehicle) has been wide spread for several decades, the demand for such workers has soared in the recent past not least due to the spectacular growth of e-retail related deliveries. Whilst much of the logistics market has seen weak growth, the volume of home deliveries has increased dramatically. This has brought a welcome source of revenue to many express parcels operators whilst at the same time raising a number of significant challenges.

Volatility in the market with frequent peaks and troughs has meant that the vast majority of parcels carriers have adopted an out-sourced model, in effect de-risking their own operations. Sub-contractors bear not only the cost of investment in transport assets but also carry the risk of revenues by being paid ‘by the drop’ or by the mile.

The e-retail market is such that so-called ‘free shipping’ is a major selling point for many companies. Of course, the costs of this marketing device are pushed onto the carrier making the delivery resulting in ultra-low rates of remuneration.

This has raised ethical concerns. The low barriers to market entry and a plentiful supply of people willing to take on a low skilled job have meant that the amount paid by some carriers is barely enough to cover the cost of running a vehicle. There have been allegations that to some carriers their sub-contractors are ‘disposable’. They can be utilized for a period of time at an unsustainable rate, knowing that they will eventually be forced to give up due to the lack of economic viability. The carrier will then replace the owner-driver from a plentiful pool of new market entrants.

Of course, many would argue that this state of affairs is merely derived from the healthy operation of a free market. In the developed world, many owner-drivers are migrants who have been attracted by employment opportunities and wages much higher than those in their own countries. By providing a large pool of new migrant capacity, the developed countries’ economies have benefited through a lower cost base. If this labour pool were reduced, then inevitably supply chain costs would rise throughout industry.

At the same time as this, the status of owner-drivers provides them with fewer entitlements than those who are legally defined as employees. For example, they have none of the protection rights of employees; sick pay; maternity/paternity leave; pensions etc despite fulfilling a role which could be argued is identical to that of an employee. Also, due to the likelihood in the parcels sector that the owner-driver will be providing and driving a van rather than a Large Goods Vehicle (LGV), they do not have to comply with European drivers’ hours legislation, placing a limit on the length of time for which they can drive. Consequently work load and hours are often very long and, as discussed above, rates of pay very small.

Self-employed or not?

It may seem surprising but whether or not an ‘employee’ is self-employed is a very grey area. According to the UK government someone is probably self-employed and shouldn’t be paid through the pay-as-you-earn (PAYE) taxation system if most of the following are true:

they’re in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit

they can decide what work they do and when, where or how to do it

they can hire someone else to do the work

they’re responsible for fixing any unsatisfactory work in their own time

their employer agrees a fixed price for their work – it doesn’t depend on how long the job takes to finish

they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work

they can work for more than one client

On top of this, guidance goes on to assert that a worker won’t have employment rights if they’re exempt from PAYE and most of the following are also true:

they put in bids or give quotes to get work

they’re not under direct supervision when working

they submit invoices for the work they’ve done

they’re responsible for paying their own National Insurance and tax

they don’t get holiday or sick pay when they’re not working

they operate under a contract that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’

Consequently, although it may seem evident that a full time delivery driver, working exclusively for a single transport company, wearing a liveried uniform and driving a liveried vehicle would be an ‘employee’, this is often not the case. However, the guidance does not provide a definitive test for self-employment, which is allowing the status to be challenged in the courts.

This is not just a UK issue, as legal challenges have been on-going in the US for many years. In 2015 FedEx paid $228 million to settle a court case in California related to the ‘misclassification’ of thousands of drivers as self-employed. Start ups Uber and Lyft face the same challenge. The US government believes that across the economy as a whole 30% of employers misclassify staff, costing $2.7 billion in unpaid taxes. For US legislators, the issue is one of overall control. If the majority of control over an operation is being exerted by a single company, then the worker is likely to be deemed as employed. Similar cases have also been brought in France.

THE ON-DEMAND ECONOMY – UNETHICAL OR NEW EMPLOYMENT MODEL?

The development of the so-called ‘on-demand’ business models of delivery companies has brought the treatment of sub-contractors under even more scrutiny from labour organizations and policy makers.

Start up restaurant meal delivery company Deliveroo is facing challenges to its sub-contracted labour model from both regulators and the sub-contractors themselves. The company has a network of drivers and riders across many countries who collect and deliver meals from a range of food outlets which do not have their own delivery capabilities.

In the UK, at present the company pays its sub-contractors £7 an hour, plus £1 per delivery. However management has introduced a new pay structure which has resulted in unrest amongst its drivers. The company wants to change the remuneration to a simple £3.75 per delivery. Although this may result in higher payments during peak times, overall there is concern that the new system will result in contractors receiving less than the minimum wage across the day as a whole.

Rival start up, UberEats, is facing similar dissention amongst its contracted workforce. The casual basis of employment for couriers means that although the opportunities to earn around £9 an hour are available, on some occasions few, if any, jobs will be allocated. However management counter that couriers don’t have set shifts, minimum hours or delivery zones that they must keep to. Many have other jobs as well.

Although some of the sub-contractors may see the on-demand model as unethical, many are suited by the arrangement. After all, both Deliveroo and UberEats have attracted many thousands of couriers to sign up to their business models.

However there have been legal challenges to whether self-employed workers should be given access to the same rights as other employees. In the contract which Deliveroo requires its drivers to sign, contractors must sign away their right to challenge their status, although legally this may be unenforceable. Employees would have rights such as pensions, holiday pay and sick pay, plus a minimum wage.

In a case related to the sacking of two workers by private hire company Addison Lee, the legal company of Union GMB commented, “Employers cannot be allowed to have all the financial benefits of employees and none of the responsibilities to these people’s livelihoods. The attempt to reframe normal employment as part of the gig economy is a serious threat to the financial security of thousands of hard working people and will end up costing the tax payer huge sums whilst companies take all the profit.”

One of the main issues, it would appear, is that the cultural barriers to less formal employment will need to be overcome if the on-demand economy is become mainstream. It is likely that employment status will become even more contentious in the future as labour organisations try to prevent the prevalence of more informal working structures and governments try to mitigate the loss of tax receipts. Both sets of vested interests are likely to be left behind by developments in the sector.

CONCLUSION

The development of the on-demand economy has shone a light on the working practices which exist throughout the industry – the widespread use of owner-drivers within a transport network. Many people would expect that the liveried drivers representing parcels companies would be their employees, but for many operators this is not the case. Parcels companies use flexible resources who are often paid by the delivery in order to balance peaks and troughs of demand with their capacity. It doesn’t make economic sense to employ their own staff and invest in their own fleet of vehicles. However this business model has come in for criticism due to the very low rates of pay and the long hours which are entailed.